MARKUP OF DRAFT FIRST PREFERRED SHIP MORTGAGE (FORM)
REDLINE — Borrower's Counsel Comments
Calderwood & Harkness LLP 425 Park Avenue New York, NY 10022
Matter No.: 1044-00002
June 23, 2023
Source Document: Draft First Preferred Ship Mortgage (Form) circulated by Whitmore, Jennings & Alcott LLP on June 16, 2023
Prepared on Behalf of: Thalassa Shipping & Logistics SA (the "Borrower")
C&H Engagement Team:
Addressed to / Circulated to:
Priya Subramanian, Esq. Harrison Caldwell, Esq. Whitmore, Jennings & Alcott LLP 51 West 52nd Street New York, NY 10019
Copy to: Aris Komnenidis, General Counsel, Thalassa Shipping & Logistics SA 14 Akti Miaouli, Piraeus 185 35, Greece
Note: This markup is delivered in connection with the proposed $150,000,000 Senior Secured Revolving Credit Facility (the "Facility") among Thalassa Shipping & Logistics SA, as Borrower, the Guarantors party thereto, Meridian Atlantic Bank, National Association, as Administrative Agent, Pinnacle Trust & Agency Services Inc., as Collateral Agent, and the Lenders party thereto (as more particularly described herein, the "Credit Agreement").
COVER TRANSMITTAL NOTE / MARKUP SUMMARY
June 23, 2023
Priya Subramanian, Esq. Whitmore, Jennings & Alcott LLP 51 West 52nd Street New York, NY 10019
Re: Thalassa Shipping & Logistics SA — $150,000,000 Senior Secured Revolving Credit Facility — Markup of Draft First Preferred Ship Mortgage (Form)
Dear Priya:
On behalf of Thalassa Shipping & Logistics SA ("TSL" or the "Borrower"), please find enclosed our redline markup of the Draft First Preferred Ship Mortgage (Form) circulated by your office on June 16, 2023 (the "WJA Draft"). This markup is delivered concurrently with our markups of the following additional Security Documents, each also dated June 23, 2023:
(i) the Share Pledge Agreement (Form);
(ii) the Assignment of Earnings (Form); and
(iii) the Assignment of Insurances (Form).
We note that the form mortgage under review is intended to serve as the template for first-priority ship mortgages to be recorded against each of the eighteen (18) Mortgaged Vessels identified in the near-final Credit Agreement (collectively, the "Mortgage Suite"). As discussed on our call of June 19, 2023, vessel-specific schedules and flag-state-specific annexes will need to be prepared for each individual mortgage instrument, reflecting the particulars of each vessel, the applicable flag state registry requirements, and the allocated mortgage amount for each vessel. We anticipate that the preparation of these vessel-specific instruments will be a significant workstream in the weeks ahead, and we would welcome the opportunity to discuss the proposed timeline for their completion at your earliest convenience.
We have embedded approximately 47 comments in the enclosed redline, organized by section of the WJA Draft. These comments are set forth in the body of the markup below and are also summarized in tabular form in the Appendix hereto. Our comments are organized into three categories: (a) Substantive comments requiring negotiation between the parties (approximately 28 comments); (b) Conforming comments addressing cross-reference corrections and defined term alignment with the Credit Agreement (approximately 12 comments); and (c) Drafting comments of a technical or typographical nature (approximately 7 comments).
We wish to highlight the following key areas of comment, which we believe will require focused discussion between the parties and their respective counsel:
(i) Mortgage Amount and Secured Obligations Definition — We object to the approach of recording the full $150,000,000 facility amount as the mortgage amount on each of the 18 vessels. This approach creates significant recording tax and registration fee exposure in certain flag state jurisdictions and is inconsistent with market practice. We propose an allocated mortgage amount methodology as described in our comments to Section 2.2.
(ii) Insurance Covenants — The WJA Draft's insurance covenants are substantially more prescriptive than market standard for senior secured ship finance transactions and, in certain respects, conflict with the terms of the separate Assignment of Insurances. Our comments to Section 5.1 set forth our detailed objections and proposed revisions.
(iii) Flag State Requirements and Multi-Jurisdiction Considerations — The WJA Draft specifies New York law as the governing law for all mortgages in the suite. This is a fundamental issue: a New York law ship mortgage may not be recordable in the Greek, Cypriot, or marshall Islands ship registries, and the governing law of each mortgage must correspond to the law of the flag state of the relevant vessel to ensure enforceability and recordability. Our comments to Section 12 address this issue in detail.
(iv) Discharge and Release Mechanics — The WJA Draft lacks adequate partial release, vessel substitution, and total loss discharge provisions. These mechanics are critical for the Borrower's fleet management flexibility and for coordination with the mandatory prepayment and collateral coverage provisions of the Credit Agreement. Our proposed provisions are set forth in Section 8.
(v) Role and Authority of Pinnacle Trust & Agency Services Inc. as Collateral Agent/Security Trustee — The WJA Draft inconsistently refers to the Mortgagee as the "Administrative Agent" in certain provisions, conflating the roles of Pinnacle Trust (Collateral Agent) and Meridian Atlantic Bank, N.A. (Administrative Agent). We request correction throughout, together with appropriate exculpation and limitation of liability provisions for the Collateral Agent.
(vi) Cross-References to the Credit Agreement — Numerous defined terms and substantive provisions in the WJA Draft are inconsistent with or narrower than the corresponding provisions of the near-final Credit Agreement. Our conforming comments identify these discrepancies and request alignment.
We look forward to discussing these comments with you and Harrison at your convenience. Please do not hesitate to contact me or Daniel Obi with any questions.
Very truly yours,
Sophie Tremblay Calderwood & Harkness LLP 425 Park Avenue New York, NY 10022 Tel: (212) 558-4700 stremblay@calderwoodharkness.com
cc: Daniel Obi (Calderwood & Harkness LLP) Ian Blackwood (Calderwood & Harkness LLP) Aris Komnenidis (Thalassa Shipping & Logistics SA)
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SECTION 1: PARTIES AND RECITALS
1.1 Identification of Mortgagor
THIS FIRST PREFERRED SHIP MORTGAGE (this "Mortgage") is made as of [__], 2023, by **[Vessel-Owning Subsidiary Name]**, a [_] organized and existing under the laws of [_], with its registered office at [__] (the "Mortgagor" ),
> C&H Comment No. 1 [Conforming]: The form should include a clear designation that the Mortgagor for each vessel is the relevant vessel-owning subsidiary of Thalassa Shipping & Logistics SA. As discussed, the eighteen (18) Mortgaged Vessels are held through three intermediate holding companies, and the Mortgagor for each vessel will be a direct or indirect subsidiary of one of the following:
(a) Thalassa Dry Bulk Holdings Ltd., a company organized under the laws of the Republic of Cyprus, which holds the vessel-owning subsidiaries for the dry bulk carrier vessels in the fleet;
(b) Thalassa Tanker Operations Ltd., a company organized under the laws of the Republic of the marshall Islands, which holds the vessel-owning subsidiaries for the tanker vessels in the fleet; and
(c) Thalassa Logistics International Ltd., a company organized under the laws of the Republic of Cyprus, which holds certain additional vessel-owning subsidiaries.
> The jurisdictions of organization of the vessel-owning subsidiaries accordingly vary: certain Mortgagors will be Cypriot companies, and certain Mortgagors will be marshall Islands entities. The form must accommodate both jurisdictional frameworks. We recommend that the bracketed information in the introductory clause be completed on a vessel-by-vessel basis, with the specific entity name, jurisdiction of organization, and registered office address for each Mortgagor.
> C&H Comment No. 2 [Conforming]: We request insertion of a master schedule (or cross-reference to a master schedule appended to the Credit Agreement) identifying all eighteen (18) Mortgaged Vessels, together with their respective vessel-owning subsidiaries, jurisdictions of organization, flag states, and IMO numbers. This master schedule will serve as the reference point for ensuring consistency across the Mortgage Suite, the Share Pledge Agreements, the Assignments of Earnings, and the Assignments of Insurances. We note that a substantially similar schedule has been prepared in connection with the near-final Credit Agreement, and we suggest that the mortgage form simply cross-reference that schedule.
> For the avoidance of doubt, Thalassa Shipping & Logistics SA, the ultimate parent company and Borrower under the Credit Agreement, is a Société Anonyme (S.A.) organized under the laws of the Hellenic Republic, with its registered office at 14 Akti Miaouli, Piraeus 185 35, Greece. Thalassa is not itself the Mortgagor under any of the individual ship mortgages; rather, it is the Borrower and the parent guarantor. The vessel-owning subsidiaries that serve as Mortgagors are wholly owned (directly or indirectly) by Thalassa.
1.2 Identification of Mortgagee / Collateral Agent
in favor of for the benefit of the Secured Parties under the Credit Agreement defined below (the or the "Mortgagee").
> C&H Comment No. 3 [Substantive]: The WJA Draft refers to the Mortgagee throughout as the "Administrative Agent" and identifies Meridian Atlantic Bank, National Association in that role. This is incorrect. Under the Credit Agreement, the roles of Administrative Agent and Collateral Agent are bifurcated: Meridian Atlantic Bank, National Association serves as the Administrative Agent, responsible for administrative functions under the Credit Agreement, while Pinnacle Trust & Agency Services Inc. serves as the Collateral Agent and Security Trustee, responsible for holding security interests (including this Mortgage) for the ratable benefit of the Secured Parties. The Mortgagee under each ship mortgage in the Mortgage Suite must be Pinnacle Trust, acting as Collateral Agent — not Meridian Atlantic, acting as Administrative Agent. We request that all references to the "Administrative Agent" as Mortgagee be revised to "Collateral Agent" throughout the entirety of this form, and that Pinnacle Trust & Agency Services Inc. be correctly identified as the Mortgagee in the introductory clause and in all subsequent provisions.
> C&H Comment No. 4 [Substantive]: We request insertion of the following language immediately following the identification of the Mortgagee:
> This language is consistent with market standard for collateral agent exculpation in multi-lender secured credit facilities and ensures that the mortgage does not impose obligations on Pinnacle Trust that are inconsistent with, or more onerous than, those set forth in the Credit Agreement.
1.3 Recitals. RECITALS:
A. Credit Agreement dated on or about [__], 2023 (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), providing for a $150,000,000 Senior Secured Revolving Credit Facility .
B. The Mortgagor is the sole legal and beneficial owner of the vessel (the "Vessel" or the "Mortgaged Vessel"), having the following particulars:
Name: [__]
Official Number: [__] Flag State: [_] IMO Number: [_] Gross Tonnage: [_] Year Built: [_] Builder: [_] Classification Society: [_] Class Notation: [__]
C.
> C&H Comment No. 5 [Substantive]: We request addition of the following Recital D:
> This additional recital provides important context for the collateral coverage analysis and is consistent with market practice in multi-vessel ship finance transactions. It also establishes a clear reference point for the Seastone Appraisals, which are relevant to the mortgage amount allocation methodology discussed in Section 2.2 below.
> C&H Comment No. 6 [Conforming]: The Recitals should include an express cross-reference to the defined term "Security Documents" as used in the Credit Agreement, to make clear that this Mortgage is one of the Security Documents referred to therein. We suggest adding the following sentence at the end of Recital C (or Recital D, if added): "This Mortgage constitutes a 'Security Document' as defined in the Credit Agreement."
SECTION 2: DEFINITIONS AND INTERPRETATION
2.1 Defined Terms
Unless otherwise defined herein, capitalized terms used in this Mortgage shall have the meanings ascribed to such terms in the Credit Agreement. The following terms shall have the following meanings for purposes of this Mortgage:
"Credit Agreement" means that certain Credit Agreement dated on or about [__], 2023, among Thalassa Shipping & Logistics SA, as Borrower, the Guarantors party thereto, Meridian Atlantic Bank, National Association, as Administrative Agent, Pinnacle Trust & Agency Services Inc., as Collateral Agent, and the Lenders party thereto, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
"Secured Obligations" means .
> C&H Comment No. 7 [Substantive]: The WJA Draft defines "Secured Obligations" in an overly expansive manner, purporting to cover "all present and future obligations howsoever arising." This formulation is inconsistent with the defined term "Obligations" in the Credit Agreement, which is appropriately limited to obligations arising under or in connection with the Credit Agreement and the other Loan Documents. The breadth of the WJA formulation could be construed to encompass obligations arising under unrelated agreements or future facilities, which is not the intent of the parties and is not supported by the Credit Agreement. We have redlined this definition to conform to the Credit Agreement and to ensure that the Mortgage secures only those obligations that the Borrower and the Guarantors have agreed to secure.
"Collateral Agent" means Pinnacle Trust & Agency Services Inc., a Delaware corporation, in its capacity as Collateral Agent and Security Trustee under the Credit Agreement, and its successors and assigns in such capacity.
"Administrative Agent" means Meridian Atlantic Bank, National Association, in its capacity as Administrative Agent under the Credit Agreement, and its successors and assigns in such capacity.
"Mortgaged Vessel" or "Vessel" means the vessel described in Schedule I hereto, together with all engines, machinery, boilers, masts, bowsprits, sails, rigging, boats, anchors, cables, chains, tackle, tools, pumps, apparel, furniture, fittings, equipment, spare parts, fuel, consumable stores, and all other appurtenances thereto appertaining or belonging, whether now owned or hereafter acquired, whether on board or ashore.
"Approved Classification Society"
> C&H Comment No. 8 [Conforming]: We request inclusion of the defined term "Approved Classification Society" as set forth above. The WJA Draft uses the term without defining it. IACS membership is the recognized market standard for approved classification societies in ship finance transactions, and this definition is consistent with the corresponding provision in the Credit Agreement.
> C&H Comment No. 9 [Conforming]: We request inclusion of a defined term for "Required Lenders" with a cross-reference to the Credit Agreement: "'Required Lenders' shall have the meaning ascribed to such term in the Credit Agreement." The concept of Required Lenders is important for the consent, direction, release, and amendment provisions of this Mortgage (see Sections 5.3, 6.2, 7.1, 8.2, and 10.2), and the term should be consistently defined by cross-reference to the Credit Agreement to avoid any discrepancy.
> C&H Comment No. 10 [Substantive]: We request inclusion of a defined term for "Mortgage Amount" — see Section 2.2 below for our comments on the appropriate methodology for determining the Mortgage Amount.
2.2 Mortgage Amount
> C&H Comment No. 11 [Substantive — Key Issue]: We object to the WJA Draft's approach of recording the full $150,000,000 facility amount as the mortgage amount on each of the eighteen (18) Mortgaged Vessels. This approach is commercially unreasonable and creates significant adverse consequences:
(a) Recording tax and registration fee exposure. Certain flag state jurisdictions (including Greece and Cyprus) impose recording taxes, registration fees, or stamp duties calculated as a percentage of the recorded mortgage amount. Recording the full $150,000,000 on each of 18 vessels would result in aggregate recording costs calculated on a notional basis of $2,700,000,000 (18 × $150,000,000), rather than the actual $150,000,000 facility amount. The incremental cost exposure is substantial and entirely unnecessary.
(b) Inconsistency with collateral allocation. The Credit Agreement contemplates a collateral coverage ratio, not full cross-collateralization at the face amount of each mortgage. Recording the full facility amount on each vessel creates the misleading impression that each vessel independently secures $150,000,000 in obligations, which is not the commercial understanding of the parties.
(c) Discharge complications. If the full facility amount is recorded on each vessel, partial releases and vessel dispositions become more complex, as the mortgage on each vessel purports to secure the entirety of the facility.
> Proposed approach: We propose that the Mortgage Amount for each vessel be its individually allocated amount, determined on the basis of one of the following methodologies (to be agreed between the Borrower and the Administrative Agent):
(i) Pro rata allocation based on appraised FMV. Each vessel's allocated Mortgage Amount would be its proportionate share of the $150,000,000 facility amount, calculated by reference to its appraised fair market value relative to the aggregate appraised FMV of all eighteen Mortgaged Vessels. For example, a vessel appraised at $50,000,000 out of an aggregate FMV of $780,000,000 would have an allocated Mortgage Amount of approximately $9,615,385 ($150,000,000 × $50,000,000 / $780,000,000).
(ii) Cushioned pro rata allocation. Alternatively, each vessel's allocated Mortgage Amount could be set at 150% of the pro rata amount determined under clause (i) above, providing a buffer above the minimum coverage level. Under this approach, the total of all allocated Mortgage Amounts across the 18 vessels would be $225,000,000 (150% × $150,000,000), and each vessel's share would be proportional to its FMV.
> C&H Comment No. 12 [Substantive]: For context, we note the following collateral coverage arithmetic:
• Total Facility amount: $150,000,000
• Minimum Collateral Coverage Ratio (per Credit Agreement): 140%
• Minimum required aggregate collateral value at full draw: $210,000,000 (140% × $150,000,000)
• Aggregate appraised FMV of 18 Mortgaged Vessels (per Seastone Appraisals): $780,000,000
• Current collateral coverage ratio: approximately 520% ($780,000,000 ÷ $150,000,000)
• Substantial headroom above minimum coverage ratio
> Given this substantial headroom, there is no commercial justification for inflating the recorded mortgage amounts to the full facility amount on each vessel. The cushioned pro rata allocation methodology described in clause (ii) above would provide more than adequate protection for the Secured Parties while avoiding the adverse consequences described above.
> C&H Comment No. 13 [Substantive]: Regardless of which allocation methodology is adopted, we request that the Mortgage expressly state that it secures the Secured Obligations up to the Mortgage Amount, with a standard "dragnet" clause limited to Loan Document obligations only. The following language is proposed:
2.3 Interpretation.
> C&H Comment No. 14 [Substantive]: The WJA Draft contains no interpretation section. We have inserted standard New York law interpretation provisions as set forth above. We note that the governing law of each individual mortgage will vary by flag state (see Section 12 below for our detailed comments), but these interpretive conventions should be consistent across the entire Mortgage Suite to ensure uniform treatment.
> C&H Comment No. 15 [Substantive]: Clause (g) above — the Credit Agreement supremacy provision — is of particular importance. The mortgage is an ancillary document intended to implement and support the Credit Agreement. Where the Credit Agreement addresses a topic (such as cure periods, materiality thresholds, consent mechanics, or permitted actions), the Credit Agreement provision should control, subject only to mandatory flag state law requirements. This principle is fundamental to the Borrower's position throughout this markup and underlies many of our comments in Sections 5, 6, 7, and 8 below.
SECTION 3: GRANT OF MORTGAGE / GRANTING CLAUSE
3.1 Grant. NOW, THEREFORE, in consideration of the premises and for the purpose of securing the Secured Obligations, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Mortgagor hereby irrevocably and unconditionally grants, conveys, mortgages, pledges, and hypothecates to the Collateral Agent, for the ratable benefit of the Secured Parties, a first-priority mortgage lien on and security interest in the Mortgaged Vessel, together with:
(a) all appurtenances, engines, machinery, boilers, masts, bowsprits, sails, rigging, boats, anchors, cables, chains, tackle, tools, pumps, apparel, furniture, fittings, equipment, spare parts, fuel, consumable stores, and all other appurtenances thereto appertaining or belonging, whether now owned or hereafter acquired, whether on board or ashore;
(b) all additions, improvements, and replacements hereafter made in or to the Vessel or any part thereof or any of the property described in clause (a) above;
(e) all other rights, title, and interest of the Mortgagor in and to the Vessel and the foregoing property.
> C&H Comment No. 16 [Substantive]: The WJA Draft uses the unqualified term "assigns" in the granting clause. We request confirmation that the use of the word "assigns" is not intended to create an absolute assignment of the Mortgagor's title to the Vessel. To avoid any ambiguity, we have revised this to "assigns by way of security," which makes clear that the Mortgagor retains legal and beneficial ownership of the Vessel, subject to the mortgage lien, and that the assignment is for security purposes only. This is critical to the Mortgagor's ability to operate, charter, and manage the Vessel in the ordinary course of business.
> C&H Comment No. 17 [Substantive]: With respect to clause (c), the granting clause should include freight, hire, and charter earnings only to the extent such earnings are not separately assigned under the Assignment of Earnings. The Borrower is delivering a separate Assignment of Earnings as part of the collateral package, and including such earnings in both the mortgage granting clause and the Assignment of Earnings would create overlapping security interests with potential priority disputes. We have revised clause (c) to include an express carve-out for earnings separately assigned under the Assignment of Earnings. If the Lenders' counsel prefers to retain earnings in the granting clause, we request insertion of a clarification that, as between this Mortgage and the Assignment of Earnings, the Assignment of Earnings shall have priority with respect to the assignment of earnings and that the provisions of this Mortgage shall not be construed to modify or supersede the terms of the Assignment of Earnings.
> C&H Comment No. 18 [Substantive]: We request deletion of clause (d) in its entirety. Insurance proceeds are the subject of the separate Assignment of Insurances, which contains detailed provisions governing the assignment of insurance policies, loss payee arrangements, and the application of insurance proceeds. Including insurance proceeds in the mortgage granting clause creates a direct conflict with the Assignment of Insurances and may give rise to questions regarding the priority and scope of the respective assignments. If the Lenders' counsel is unwilling to delete clause (d), we request, at minimum, that the clause be revised to clarify that the mortgage lien on insurance proceeds is subordinate to and governed by the terms of the Assignment of Insurances, and that in the event of any conflict between this Mortgage and the Assignment of Insurances with respect to insurance proceeds, the Assignment of Insurances shall control.
3.2 After-Acquired Property
> C&H Comment No. 19 [Substantive]: The WJA Draft includes a broad after-acquired property clause that would bring within the scope of the mortgage lien all property of any kind placed on board the Vessel, regardless of ownership. This is problematic because it would purport to encumber property owned by third parties — for example, containers or specialized handling equipment leased from third-party lessors under operating leases, or equipment belonging to charterers under time charter arrangements. The Mortgagor has no authority to encumber property it does not own, and any attempt to do so would be ineffective and potentially give rise to claims by third-party owners. We have revised the clause to limit the after-acquired property lien to property owned by the Mortgagor, with an express carve-out for third-party owned property.
SECTION 4: REPRESENTATIONS AND WARRANTIES OF THE MORTGAGOR
4.1 Title and Ownership
The Mortgagor represents and warrants to the Collateral Agent and the Secured Parties that, as of the date hereof:
(a) The Mortgagor is the sole legal and beneficial owner of the Vessel, free and clear of all liens, charges, mortgages, encumbrances, and claims of every kind, except .
> C&H Comment No. 20 [Conforming]: The WJA Draft contains a standalone definition of permitted exceptions to the Mortgagor's ownership representation that is narrower than the defined term "Permitted Liens" in the Credit Agreement. The Credit Agreement definition of "Permitted Liens" was the subject of extensive negotiation and includes, in addition to the items listed in the WJA Draft, such items as liens arising by operation of law (including salvage liens, general average liens, and liens for necessaries), liens for taxes not yet due, and liens consented to by the Required Lenders. The mortgage representation should be conformed to the Credit Agreement definition by cross-reference. We have made the appropriate revision.
4.2 Flag State Registration
(b) The Vessel is duly registered under the flag of [__] and is duly documented with the [__] , and such registration is in full force and effect.
> C&H Comment No. 21 [Conforming]: The eighteen Mortgaged Vessels are flagged across multiple jurisdictions, including:
• Greece (Hellenic flag) — vessels registered with the Greek Ship Registry (Naftiko Mitroo) maintained by the Ministry of Maritime Affairs and Insular Policy;
• Cyprus — vessels registered with the Department of Merchant Shipping of the Republic of Cyprus; and
• Republic of the marshall Islands — vessels registered with the marshall Islands Maritime Administrator (Quillon Industries acting as Administrator).
> This form mortgage must accommodate vessels flagged in each of these jurisdictions. We request that flag-state-specific annexes (Annexes A, B, and C) be appended to the form to address the registration, recording, and enforcement requirements specific to each flag state. See Section 13 below for our detailed comments on the proposed annexes.
> C&H Comment No. 22 [Drafting]: We request that the representation regarding flag state registration be qualified to the Mortgagor's knowledge with respect to any pending proceedings, investigations, or proposed regulatory actions that might affect the Vessel's registration. The proposed qualification is as follows:
4.3 Classification. (c) The Vessel is classed with and is in class without overdue recommendations or conditions .
> C&H Comment No. 23 [Conforming]: As noted in Section 2.1 above, "Approved Classification Society" should be defined by reference to IACS membership. The WJA Draft's formulation — "classification society acceptable to the Administrative Agent" — is subjective and provides no objective standard. IACS membership is the universally recognized benchmark in the ship finance market.
4.4 No Prior Mortgages
(d)
> C&H Comment No. 24 [Substantive]: The representation that no prior mortgages exist is currently inaccurate for certain of the Mortgaged Vessels, which are subject to existing first preferred ship mortgages granted in connection with the Existing Facility. The Existing Facility will be refinanced and repaid in full with proceeds of the initial borrowing under the new Credit Agreement, and the existing Harborstone mortgages will be discharged contemporaneously with or immediately following such repayment. We have revised the representation to accurately reflect the current state of title while confirming that the existing encumbrances will be removed at closing. We request that the Credit Agreement include standard "payoff and release" condition precedent language requiring delivery of (i) payoff letters from Harborstone National Bank, (ii) executed mortgage discharge instruments, and (iii) evidence of recording of such discharges, as conditions to the initial borrowing under the new Facility.
4.5 Compliance with Laws
(e) Mortgagor and the Vessel are in compliance with all applicable laws, rules, and regulations, including all applicable maritime laws, environmental laws , and sanctions laws .
> C&H Comment No. 25 [Substantive]: The representation regarding compliance with all applicable laws is acceptable in principle but must be qualified by materiality. An unqualified compliance representation is impracticable for a vessel operator — minor, immaterial regulatory infractions (e.g., documentation irregularities, minor port state control observations that do not result in detention) should not constitute a breach of this representation and warranty. The addition of "in all material respects" is consistent with the corresponding representation in the Credit Agreement.
SECTION 5: COVENANTS OF THE MORTGAGOR
> C&H General Comment on Section 5 [Substantive]: As a threshold matter, we note that the covenants set forth in this Section 5 substantially overlap with the covenants of the Borrower and the Guarantors set forth in the Credit Agreement. To the extent that a covenant in this Mortgage is more restrictive, more prescriptive, or lacks the qualifications (including materiality thresholds, cure periods, and carve-outs) applicable to the corresponding covenant in the Credit Agreement, we have proposed revisions to conform the mortgage covenant to the Credit Agreement covenant. The general principle, as set forth in Section 2.3(g) above, is that the Credit Agreement should govern in the event of any inconsistency.
5.1 Insurance Covenants
> C&H Comment No. 26 [Substantive — Key Issue]: This is a major area of comment. The WJA Draft's insurance covenants are substantially more prescriptive than market standard for senior secured ship finance transactions and, in several respects, impose requirements that go beyond what was negotiated in the Credit Agreement. Moreover, the detailed insurance mechanics should be — and are — addressed in the separate Assignment of Insurances. The mortgage insurance covenants should be limited to high-level obligations, with detailed mechanics addressed in the Assignment of Insurances. Our specific comments follow.
(a) Hull & Machinery Insurance. The Mortgagor shall maintain hull and machinery insurance ("Pyreval Insurance") on the Vessel in an amount not less than the greater of (i) the of the Vessel and (ii) the , placed with underwriters .
> C&H Comment No. 27 [Substantive]: The standard of "acceptable to the Collateral Agent" is unqualified and provides the Collateral Agent with unfettered discretion to object to the Borrower's insurance arrangements. We have revised this to "reasonably acceptable to the Collateral Agent," which imposes an objective reasonableness standard. We note that TSL's marine insurance program is placed through Trident Marine Insurance Brokers Ltd. (Lloyd's Building, One Lime Street, London EC3M 7HA, United Kingdom), a reputable London market broker, and that Trident Marine will provide evidence of coverages satisfying the requirements of this Mortgage and the Credit Agreement. TSL's current insurance program has been in place for over a decade and is with underwriters of recognized standing in the London and international insurance markets.
> C&H Comment No. 28 [Substantive]: The valuation for H&M insurance purposes should be based on the most recent Seastone Maritime Advisors appraisal (or an updated appraisal by Seastone or another approved appraiser delivered in accordance with the Credit Agreement), not an arbitrary determination by the Collateral Agent. We have revised the clause accordingly.
(b) Protection & Indemnity Insurance. The Mortgagor shall maintain protection and indemnity insurance ("P&I Insurance") with respect to the Vessel with a P&I Club that is a member of the International Group of P&I Clubs, in customary amounts .
> C&H Comment No. 29 [Substantive]: We request deletion of the requirement that the P&I Club be "acceptable to the Administrative Agent." Membership in the International Group of P&I Clubs is the universally recognized market standard in the international shipping industry. The International Group's member clubs collectively insure approximately 90% of the world's ocean-going tonnage, and membership in the International Group is a sufficient and objective standard of quality and financial standing. TSL's fleet is currently entered with Northpoint Industries (one of the thirteen clubs comprising the International Group), and we are not aware of any transaction in which a lender has required P&I coverage to be placed with a club outside the International Group.
(c) War Risk Insurance.
> C&H Comment No. 30 [Substantive]: The WJA Draft requires maintenance of war risk insurance "at all times" for all Mortgaged Vessels. This is not market standard. War risk insurance is maintained only when a vessel is actually trading in designated war risk areas (as determined by the Cascade Corporation) or as required by charter party. Requiring blanket war risk coverage at all times, including when vessels are trading in safe waters, would impose an unnecessary cost burden on the Borrower. We have revised the covenant to limit the war risk insurance requirement to vessels actually trading in designated war risk areas.
(d) Loss Payee / Additional Assured. shall be named as first loss payee under all Pyreval Insurance policies and as additional assured under all P&I Insurance coverage, in each case .
> C&H Comment No. 31 [Conforming]: This clause correctly requires the Mortgagee to be named as first loss payee and additional assured, which is standard. However, we request two revisions: (i) the reference to "Administrative Agent" should be corrected to "Collateral Agent" (consistent with our Comment No. 3), and (ii) the clause should note that the detailed insurance assignment mechanics — including the form of loss payee clause, the application of insurance proceeds, and the notice requirements — are comprehensively addressed in the separate Assignment of Insurances. The mortgage should not contain provisions that duplicate or conflict with the Assignment of Insurances.
(e) Notice of Cancellation. Insurers shall be required to provide prior written notice to the Collateral Agent of any cancellation, material change, or non-renewal of any insurance required to be maintained hereunder.
> C&H Comment No. 32 [Substantive]: We request that the notice period for war risk insurance be reduced from 30 days to 14 days, which is market standard for war risk coverage. War risk insurance policies typically contain automatic termination provisions that can be triggered with as little as 7 days' notice, making a 30-day notice requirement impracticable. For all other coverages (H&M, P&I, etc.), the 30-day notice period is acceptable. Trident Marine Insurance Brokers Ltd. will facilitate the notice arrangements with the relevant underwriters and P&I club.
(f) No Separate Insurance by Mortgagor.
> C&H Comment No. 33 [Substantive]: We request deletion of this clause in its entirety. The prohibition on obtaining additional insurance without lender consent is commercially unreasonable and would prevent the Borrower from obtaining supplementary coverages that are prudent and customary in the shipping industry, including without limitation:
(i) increased value insurance (a standard component of hull insurance programs that provides additional coverage above the agreed hull value);
(ii) freight interest insurance (covering the risk of loss of freight earnings following a casualty);
(iii) additional P&I top-up coverage (additional layers of P&I coverage above the International Group pooling limits); and
(iv) pollution liability insurance (additional coverage beyond what is provided under P&I entry).
> These are standard and prudent coverages that protect the Borrower's (and, indirectly, the Lenders') interests. Prohibiting the Borrower from obtaining such coverages without consent is counterproductive. Moreover, requiring lender consent for routine insurance decisions would be operationally impracticable given the time-sensitive nature of insurance placements.
5.2 Maintenance and Repair
The Mortgagor shall keep the Vessel in good order, condition, and repair and shall maintain the Vessel's classification with , free of overdue recommendations or conditions of class .
> C&H Comment No. 34 [Substantive]: We request addition of the qualification "in all material respects." Minor maintenance deficiencies that do not affect the Vessel's class status, seaworthiness, or ability to trade should not constitute a covenant breach under the Mortgage. The Credit Agreement contains a corresponding materiality qualification, and the mortgage covenant should be conformed.
5.3 Flag and Registration
The Mortgagor shall not change the flag or registry of the Vessel without the prior written consent of .
> C&H Comment No. 35 [Substantive]: Two issues arise with this provision as drafted by WJA:
> First, the consent standard. Consent to a flag change should be a decision of the Required Lenders acting through the Administrative Agent, not a decision of the Collateral Agent acting independently. Under the Credit Agreement, the Collateral Agent acts at the direction of the Required Lenders (or, in certain cases, all Lenders) on matters requiring Lender consent. The Collateral Agent should have no independent discretion on a commercial matter such as re-flagging.
> Second, the Borrower requires the flexibility to re-flag vessels without the delay and uncertainty of a formal consent process, provided that the Lenders' security position is fully preserved. The proviso we have inserted permits re-flagging without consent if all four specified conditions are satisfied — most critically, the delivery of a replacement first-priority mortgage under the laws of the new flag state, together with a legal opinion confirming enforceability. This approach protects the Lenders' security interest while giving the Borrower appropriate operational flexibility.
5.4 Operation. The Mortgagor shall operate the Vessel, or cause the Vessel to be operated, in compliance with all applicable laws, rules, and regulations, including without limitation the International Safety Management Code (the "ISM Code"), the International Ship and Port Facility Security Code (the "ISPS Code"), and all applicable sanctions laws .
> C&H Comment No. 36 [Substantive]: The sanctions compliance clause in the mortgage should mirror the sanctions representation and covenant in the Credit Agreement, which was the subject of extensive negotiation. We request deletion of the WJA Draft's standalone "deemed knowledge" standard, which would impute constructive knowledge of sanctions violations to the Mortgagor regardless of whether the Mortgagor had actual knowledge or reason to know of such violations. The Credit Agreement sanctions covenant uses an "actual knowledge" or "should reasonably be expected to know" standard, which is the market standard in ship finance transactions. The mortgage should not impose a more onerous standard.
5.5 Inspection Rights
> C&H Comment No. 37 [Substantive]: The WJA Draft's inspection provision is unrestricted — it permits the Collateral Agent to inspect "at any time upon reasonable notice," with no limitation on frequency or allocation of costs. We have revised the provision to impose the following limitations (consistent with market practice):
(i) frequency limited to once per calendar year (absent an Event of Default);
(ii) minimum notice period of five (5) Business Days (reduced to two (2) Business Days during an Event of Default);
(iii) inspections to occur during normal business hours; and
(iv) costs borne by the Collateral Agent (or the Lenders), except during the continuance of an Event of Default.
5.6 Notification of Events
The Mortgagor shall promptly notify the Collateral Agent in writing of
.
> C&H Comment No. 38 [Substantive]: We request a materiality threshold for the notification obligation. The WJA Draft requires notification of "any casualty, arrest, detention, seizure, or other event affecting the Vessel," which would require notification of de minimis incidents (e.g., minor paint scraping in port, routine port state control inspections, minor equipment malfunctions). This is operationally impracticable for a fleet of 18 vessels. We have revised the provision to require notification only of events exceeding the thresholds described above, which is consistent with market practice and with the Credit Agreement notification requirements.
5.7 Chartering.
> C&H Comment No. 39 [Substantive]: The WJA Draft restricts chartering to time charters of not more than three years, with all other charters requiring Collateral Agent consent. This is inconsistent with the Credit Agreement, which contains a negotiated definition of "Permitted Charter" that permits charters of various types and durations, subject to specified conditions. The mortgage should not impose additional chartering restrictions beyond those set forth in the Credit Agreement. We further note that the Assignment of Charter (a separate Security Document) addresses time charters with remaining terms of twelve (12) months or more, and the chartering covenant in this Mortgage should be coordinated with that instrument.
SECTION 6: EVENTS OF DEFAULT
6.1 Cross-Reference to Credit Agreement Events of Default
> C&H Comment No. 40 [Substantive — Key Issue]: This cross-default provision is acceptable and should be the sole basis for acceleration and enforcement under the Mortgage. Cross-default to the Credit Agreement is the standard and appropriate mechanism: the Credit Agreement contains the comprehensive suite of events of default, together with carefully negotiated notice periods, cure periods, grace periods, and materiality thresholds. Enforcement under the Mortgage should be triggered only when an Event of Default exists under the Credit Agreement, ensuring that the Borrower receives the full benefit of the protections negotiated in the Credit Agreement.
6.2 Standalone Mortgage Events of Default (WJA Draft)
> C&H Comment No. 41 [Substantive — Key Issue]: We request deletion of all standalone mortgage events of default. Each of the covenants referenced in clauses (a) through (d) above is already replicated in the Credit Agreement as a covenant of the Borrower and the Guarantors, and a breach of any such covenant (subject to applicable notice and cure periods and materiality thresholds) constitutes an Event of Default under the Credit Agreement. The inclusion of standalone defaults in the Mortgage would create a "hair trigger" mechanism that bypasses the cure periods, grace periods, and materiality thresholds carefully negotiated in the Credit Agreement. For example:
• Under the Credit Agreement, a breach of the insurance maintenance covenant is subject to a 30-day cure period following written notice. Under the WJA Draft's standalone mortgage default, the same breach would constitute an immediate Event of Default under the Mortgage, with no cure period — enabling the Collateral Agent to commence enforcement proceedings before the Borrower has had any opportunity to cure.
• Under the Credit Agreement, a failure to pay recording fees would constitute a default only if it involved a payment in excess of a specified materiality threshold and was not cured within a specified grace period. The standalone mortgage default has no such protections.
> This inconsistency is not merely theoretical; it creates a genuine risk that the Collateral Agent (or a Lender directing the Collateral Agent) could use the standalone mortgage defaults to bypass the protections of the Credit Agreement, potentially to the detriment of the Borrower and other Lenders.
> C&H Comment No. 42 [Substantive]: If the Lenders' counsel insists on retaining any standalone mortgage events of default, they must be subject to the following conditions:
(a) Each standalone default must be subject to, at minimum, the same notice and cure periods as the corresponding provision in the Credit Agreement (and, to the extent that the Credit Agreement provides for a longer cure period, the longer period shall apply);
(b) Each standalone default must be subject to the same materiality thresholds as the corresponding provision in the Credit Agreement;
(c) The Collateral Agent may act upon any standalone default only at the written direction of the Required Lenders (as defined in the Credit Agreement) — the Collateral Agent shall have no independent discretion to declare a default or commence enforcement proceedings; and
(d) No standalone default shall be deemed to have occurred if the underlying event or circumstance would not constitute an Event of Default under the Credit Agreement.
> In our view, if conditions (a) through (d) are imposed, the standalone defaults would be entirely redundant with the Credit Agreement cross-default, and their deletion would simplify the Mortgage without any loss of protection for the Lenders.
SECTION 7: REMEDIES
7.1 Foreclosure and Sale
Upon the occurrence and during the continuance of an Event of Default, the foreclose on the Vessel and , whether by private sale, public auction, or judicial process, in accordance with the laws of the Flag State and any other applicable jurisdiction
.
> C&H Comment No. 43 [Substantive]: We have made two categories of revisions to this provision:
> First, the foreclosure remedy should be exercisable by the Collateral Agent only at the written direction of the Required Lenders. This is consistent with the agency provisions of the Credit Agreement, under which the Collateral Agent acts as agent for the Secured Parties and does not exercise independent discretion on enforcement matters. Permitting the Collateral Agent to foreclose without Lender direction could lead to precipitous enforcement actions that are not in the collective interest of the Lender group.
> Second, we have inserted procedural protections for the Mortgagor in connection with any foreclosure sale, including minimum notice, the right to obtain an independent appraisal, and a commercial reasonableness standard. These protections are standard in mortgage instruments and are designed to ensure that the Vessel is not sold at a distressed price that would leave the Borrower with a significant deficiency claim. A commercially reasonable sale process benefits all parties — including the Lenders, who will realize greater recoveries from a well-conducted sale.
7.2 Appointment of Receiver
> C&H Comment No. 44 [Substantive]: We request that the appointment of a receiver be available only by court order, and not by unilateral action of the Collateral Agent. Court-supervised receiver appointments provide important procedural safeguards, including judicial oversight of the receiver's conduct and the protection of the Mortgagor's rights. Unilateral appointment of a receiver — without notice, hearing, or court supervision — is an extraordinary remedy that should not be available absent a specific statutory authorization in the applicable flag state law. We have revised the provision accordingly, with a carve-out for jurisdictions where unilateral appointment is expressly permitted by mandatory law.
7.3 Application of Proceeds
The proceeds of any foreclosure, sale, or other enforcement action under this Mortgage shall be applied in the following order of priority:
(a) first, to the payment of all costs and expenses of the foreclosure, sale, or other enforcement action, including court costs, receiver's fees, and expenses of sale;
(b) second, to the payment of all fees and expenses of the Collateral Agent incurred in connection with the enforcement of this Mortgage, including reasonable attorneys' fees and disbursements;
(c) third, to the payment of the Secured Obligations in the order of priority and in the manner determined under ; and
(d) fourth, any surplus remaining after the application of proceeds pursuant to clauses (a) through (c) above shall be paid to the Mortgagor .
> C&H Comment No. 45 [Substantive]: Two comments on the application of proceeds waterfall:
> First, the application of proceeds to the Secured Obligations (clause (c)) must be consistent with the payment waterfall set forth in the Credit Agreement. The Credit Agreement waterfall governs the priority of payments among the various categories of Secured Obligations (principal, interest, fees, indemnities, etc.) and among the Lenders. The mortgage should not contain an independent waterfall that could conflict with the Credit Agreement provisions. We have revised clause (c) to incorporate the Credit Agreement waterfall by cross-reference.
> Second, any surplus after full satisfaction of the Secured Obligations must be paid to the Mortgagor promptly and without setoff. The WJA Draft does not specify a timeframe for surplus payments or prohibit setoff. We have added language requiring prompt payment without setoff.
7.4 Rights Cumulative